In the ever-evolving landscape of global trade, staying informed about free trade agreements is essential for businesses looking to expand their international operations and seize new opportunities. One such significant agreement that has reshaped North American trade dynamics is the United States-Mexico-Canada Agreement (USMCA). For business professionals engaged in trade activities with Canada and Mexico, understanding the rules and provisions related to the USMCA is paramount. In this blog, we'll delve into four key provisions included in the 2020 update to the USMCA and the implications for North American commerce.

Modernizing Trade for the Digital Age

The USMCA, often dubbed NAFTA 2.0, was designed to adapt to the digital economy that has evolved since the original agreement took effect in 1994. The accord places a strong emphasis on digital trade, data protection, and e-commerce, creating a favorable environment for companies operating in these domains. Business professionals can capitalize on the increased digital trade provisions to expand their online presence, engage in cross-border e-commerce, and tap into a wider consumer base.

Navigating Rules of Origin and Market Access

Understanding the intricate rules of origin within the USMCA is vital for organizations seeking to maximize the benefits of the agreement. The new rules lay out specific criteria pertaining to Tariff Shift and Regional Value Content (RVC) rules, that products must meet to qualify for preferential tariff treatment. Preferential tariff treatment provides improved market access, allowing U.S. businesses to continue trade with Mexico and Canada with reduced tariffs and barriers. Meeting the standards of the USMCA allows businesses to maximize the benefits and succeed in their North American trade initiatives.

New Automotive Rules to Fostering Regional Growth and Fair Trade

The USMCA also brought about substantial changes in automotive rules within the region. One key alteration was the increase in the regional value content (RVC) requirements, mandating a higher percentage of vehicle components to be sourced from the region while eliminating loopholes used to undermine RVC thresholds. This shift aimed to incentivize the use of North American materials and labor, promoting economic growth and job creation within the member countries.  Additionally, the USMCA implemented rules promoting higher wages for auto workers, seeking to level the playing field and discourage outsourcing of production to lower-wage countries. These changes signify a reformed approach to automotive trade, emphasizing regional cooperation and fairness in the industry.

Strengthened Labor and Environmental Standards

Unlike its predecessor, the USMCA places more robust labor and environmental standards at the forefront of the agreement. This shift resonates with the growing global focus on sustainable and responsible business practices. For organizations participating in global trade, this means aligning business operations with these elevated standards to ensure compliance and create a more equitable work environment for all. Moreover, these standards can present opportunities for collaboration and innovation in sustainable technologies and practices.

Learn More about the USMCA

In conclusion, the USMCA has significantly modernized the North American trade landscape, offering both challenges and opportunities for businesses engaged in North American commerce. For organizations involved in trade with Canada and Mexico, it's crucial to know the rules of USMCA to make informed decisions that align with your company's growth objectives.

To delve even deeper into the nuances of the USMCA and maximize the benefits of trade with Canada and Mexico, we encourage you to attend our upcoming training session: The Basics of USMCA . Industry experts, Jean-Marc Clement, Principal at Clement Trade Law, and Mark Bleckley, Associate Director at GVSU’s Van Andel Global Trade Center will provide comprehensive insights into the applicable rules, equipping you and your business with the knowledge needed to leverage its advantages effectively. Generously sponsored by Clement Trade Law and Supply Chain Solutions you don't want to miss this opportunity to enhance your expertise and expand your knowledge of the USMCA!

Learn more about the upcoming Basics of USMCA training here

In a recent announcement on September 6, 2023, the Office of U.S. Trade Representative Katherine Tai revealed that the expiration date for the Section 301 tariff exclusions has been extended. Originally set to expire on September 30, 2023, these exclusions will now remain in effect until December 31, 2023, as reported by Reuters. This decision impacts a wide range of Chinese imports. Here, we break down the key details you should be aware of regarding these tariff exclusions.

Impact on Imports

The continuation of these tariff exclusions impacts a total of 352 Chinese imports and 77 categories related to COVID-19 are affected. The categories encompass an extensive range of products, including industrial components like pumps and electric motors, automotive parts, chemicals, vacuum cleaners, and critical medical supplies such as face masks, gloves, and sanitizing wipes.

Understanding Section 301

To comprehend the context of these tariff exclusions, it's essential to understand the legal framework behind them. These exclusions are rooted in Section 301 of the Trade Act of 1974. This legislative provision empowers the President of the United States to impose tariffs on imports from countries engaging in unfair trade practices. The Office of the United States Trade Representative (USTR) is tasked with the authority to conduct investigations and take necessary actions to protect U.S. rights under various trade agreements, as outlined by the Congressional Research Service.

Origins of the China 301 Tariffs

The origins of these tariffs can be traced back to actions taken in 2018 and 2019 when former U.S. President Donald Trump imposed tariffs on a wide array of imports from China, totaling around $370 billion. These tariffs were implemented following a comprehensive Section 301 investigation. The investigation revealed that China was involved in the misappropriation of U.S. intellectual property and was pressuring U.S. companies into transferring sensitive technology.

These findings prompted the U.S. government to take action to address trade imbalances and unfair trade practices with China. (Source: White & Case)

In conclusion, the extension of the Section 301 tariff exclusions underscores the ongoing efforts of the United States to rectify trade imbalances and address unfair practices, particularly with China. Stay tuned for updates as the situation evolves.

Country of origin is one of the more confusing concepts to master in conducting international trade or even applying to U.S. domestic business activities. There are three crucial pieces of data that must be managed for compliance purposes in international trade - customs value, Harmonized System (HS) classification, and country of origin. Customs value which determines the amount of duty and taxes to be paid on imported goods is based on a global standard known as the "Valuation Agreement", a treaty administered by the World Trade Organization. HS classification is a standardized system for the classification of goods adopted by almost every country in the world. Country of origin, conversely, is subject to no global standard. There are many authorities and governing bodies (called jurisdictions) that are crafting specific rules of origin which meet the specific objectives and purposes of that jurisdiction.

Before making country of origin too complicated or confusing, there is a universally accepted basic concept of country of origin which should be the default definition until some entity decides to redefine it. In international trade, "country of origin" refers to the country where a product was grown, produced, or manufactured. For raw materials and commodities, this means it wholly originated in a country. For manufactured goods, the country of origin is typically determined by the place where the product underwent its last substantial transformation, meaning the point at which it was transformed into a new and distinct article from the raw material or components used in the production of the goods. This general definition of country of origin should be the default definition in international trade, both import and export, until some authority re-defines it.

Here are the most common jurisdictions (primarily in the United States) of country-of-origin definition to be aware of.  These authorities have established specific definitions of "country of origin" for various purposes:

1. Importing into the United States: U.S. Customs and Border Protection (CBP) is responsible for enforcing trade regulations at U.S. ports of entry. The CBP uses a specific set of rules to determine the country of origin for imported goods, known as the "Marking of Country of Origin of Imported Merchandise" regulations, utilized for declaration requirements on all U.S. customs entries and the country of origin marking of goods. These regulations define the country of origin as the product’s country of last substantial transformation, following the basic default definition for country of origin.
2. Exporting from the United States: When U.S. exporters are completing export documents and export declarations for international shipments, they should still declare the country of origin, as required on the export commercial invoice and export declaration, utilizing the same basic default definition of country of origin – the country it was manufactured in or substantially transformed in – until another jurisdiction of country of origin supersedes that definition. Technically, every country of destination is a different jurisdiction that can define country of origin for their purposes. Still, U.S. exporters should stick to the general definition unless instructed otherwise by their foreign customers.
3. United States-Mexico-Canada Agreement (USMCA): The USMCA is a free trade agreement between the United States, Mexico, and Canada. The USMCA includes specific rules of origin that determine whether a product qualifies for preferential tariff treatment under the agreement. The specific rules of origin written into the agreement require the use of tariff shift and regional value content as the defining rules determining qualification as an originating good from the parties to the agreement.
4. All other U.S., and most other international free trade agreements: Each FTA agreement will have specific rules of origin written in the same manner as the USMCA agreement.
5. Federal Trade Commission (FTC): The FTC issues its own set of country-of-origin rules for the use of “Made in the USA" in the United States. U.S. manufacturers are not required to mark or identify U.S.-made products on product labels are in advertising material, but if they do, it must meet a strict set of FTC rules. If a U.S. business makes a claim of “Made in the U.S.” the FTC considers the statement to be an unqualified claim or origin and sets the standard that it must be “all or substantially all” made in the U.S. – loosely quantified as 80% or more.  If not, then a qualified claim is required. Qualified claims must include phrases like "Made in the USA with imported parts" or “Assembled in the U.S. with U.S. and foreign components”. The FTC's objective is to ensure that consumers are not misled about the domestic and foreign content of the products they purchase.
6. U.S. Department of Agriculture (USDA): The USDA has specific regulations regarding the labeling of agricultural products, including country of origin labeling (COOL) requirements. Under these regulations, certain food products must be labeled with their country of origin, including beef, pork, lamb, chicken, and goat meat, as well as perishable agricultural commodities such as fruits and vegetables.
7. Buy American Act: The Buy American Act is a federal law that requires that certain federal government purchases of goods and materials be made from domestic sources unless an exception applies. Under the Buy American Act, a product is considered to be of domestic origin if it is manufactured in the United States, and at least 50% of the cost of the components of the product is attributable to materials mined, produced, or manufactured in the United States.
8. Michigan State Trade Expansion Program (STEP): The Michigan STEP program is a state-run program that provides grants to small businesses in Michigan to help them expand their exports. The program includes specific rules regarding the country of origin of the exported products. To be eligible for the program, a product must be manufactured in Michigan and at least 51% of the value of the product must be attributable to materials and labor costs in Michigan.

Mastering the intricate concept of country of origin in international trade, as well as its application to U.S. domestic business activities, can be a perplexing endeavor. The definition of country of origin lacks a universal consensus, allowing jurisdictions to mold it to their specific objectives. However, before succumbing to overwhelming complexity, it is crucial to recognize the universally accepted basic concept of country of origin—a default definition that refers to the country where a product was grown, produced, or manufactured. This general definition should serve as a starting point in international trade until an authoritative entity redefines it. By familiarizing ourselves with the various jurisdictions and governing bodies involved, such as U.S. Customs and Border Protection, the United States-Mexico-Canada Agreement (USMCA), and the Federal Trade Commission, we can navigate the labyrinthine landscape of country of origin with confidence and compliance. Whether importing or exporting, it is vital to adhere to the prevailing definitions while remaining open to the ever-evolving dynamics of international trade.

Are you interested in learning more about Country of Origin?  Since 1999, GVSU's Van Andel Global Trade Center (VAGTC) has been helping Michigan businesses succeed globally through import and export training and consulting. Whether you are thinking about opening a new market, figuring out customs compliance and international regulations, or looking for overseas suppliers to complement your global supply chain, Van Andel Global Trade Center can help.  Contact us today!

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About the Contributor:

Mark Bleckley is the Associate Director at GVSU’s Van Andel Global Trade Center. He is a licensed customs broker and has been involved in global trade for over 30 years. He has managed all aspects of import and export operations, including transportation and logistics, customs clearance, export documentation, recordkeeping, compliance and management of Harmonized Tariff Schedule and country of origin determination and management, as well as, analyzing free trade agreements for maximum benefit.

It seems like all over the internet there are guides giving advice on specific locations or countries. Some of their advice can range from very specific to extremely broad, making it all the more confusing as to what advice might carry over into a different country. But what advice do all these guides have in common?

Here are some general rules to apply when expanding your business to any country:

1. Understand the Market

Market research is absolutely vital when trying to reach a certain segment. When expanding internationally, this step is crucial. Markets vary widely by country and region, market research for a specific area/region is highly recommended.

Some things to consider while putting together market research:

• Local currencies
• Potential client base in your market segment
• Number of local competitors currently in your target segment
• Foreign competitors in the desired market segment

If performing business from your home country and shipping to a foreign country, ask yourself: Do they take my currency? Could I take their local currency? What kind of people am I trying to sell my product to? What type of people need my product? Which companies in that market are already selling a product similar to what I am trying to sell? Is that market oversaturated?

Asking and answering these types of questions can help verify that your business can become successful in your next venture.

2. Know the Regional Politics

On the outside, a venture might seem extremely viable, but if the political climate is not advantageous then everything can stop in its tracks. If governmental entities are unwelcoming to foreigners or certain types of businesses, then adjustments should be made accordingly.

 Things to look out for regarding regional politics include:

• Recently passed legislation regarding the business sector your company is attempting to enter
• Any tariffs or exceptional high duties
• Past and present tensions between the country of origin and the country your business is attempting to expand to

Has the country you’re operating from been at odds with the country you are trying to perform business with recently? Have the respective governments responded by putting tariffs and other restrictions on each other? Such actions would make trying to get your product within that country extremely expensive and could potentially ruin the competitive advantage you once held over your foreign competitors.

Additionally, if the country residents are highly involved in these politics, they might boycott your product anyway. It is important to consider this a highly relevant factor when attempting to expand internationally.

3. Study the Culture

The culture difference can be a make-or-break point when introducing a new business within a foreign culture. Certain topics might be considered more taboo, other countries may hold more conservative values, and different countries might have almost no boundaries at all.

Here are some techniques to get an accurate grasp of a country’s culture:

• Analyze Their Media - If a country’s media broadcasts highly controversial or offensive content, business in this country may not be good for business. Media analysis can also often give you an idea of what’s popular with your demographic and help you advertise abroad.
• Look at Their Laws - Some countries might ban certain demographics from certain activities by the letter of their law. In that case, it would not be wise to release a product that would make those demographics legally vulnerable or unsafe.
• Know Their History - Countries historically go through phases, yet many aspects of their culture remain constant over time. It’s important to understand major historical movements that have happened within your target country, how they affected or changed the culture, and whether are not some of those impacts are still lasting today. Additionally, it is vital to identify ongoing movements and build that into your brand identity for marketing within that country.

Also, understand that cultures within countries can also vary by region as well, so the more specific an analysis is to the target area the better. It is vital to know if your product or service would transition well within a country’s culture to gauge how successful it has the potential to be. For example, avoid selling products that go against a religious belief held by the majority or confront a cultural taboo in the country you are looking to do business in. It is vital to identify whether your product has a “fit” within the culture you are trying to sell to.

With all three of these major factors in mind, you are now ready to successfully expand your business abroad and find yourself a market with the perfect fit for your product or service and the Van Andel Global Trade Center (VAGTC) can help! Whether you are a company just starting to consider global expansion or have been at it for a few years, VAGTC can help you go global or expand into new markets. With funding opportunities available for small and medium-sized businesses from the Michigan Economic Development Corporation (MEDC) through the Michigan State Trade Expansion Program (STEP), there is no better time than now to start or expand your export operations!

For more specialized information on expanding your business internationally and getting connected to the MEDC and STEP, schedule a consultation with the Van Andel Global Trade Center to answer any questions and get connected.

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ABOUT THE CONTRIBUTOR

Natalie Bremmer is a Student Assistant at   GVSU’s Van Andel Global Trade Center . She is a Senior currently pursuing an undergraduate degree in Finance, Human Resource Management, and General Management at Grand Valley State University. She enjoys lifting weights, getting lost in a good video game, spending time with friends, and going on long hikes.

Edited by Parker Mackey, a student assistant at the Van Andel Global Trade Center.